Congratulations & Thank You! You’ve listened to my advice! You’ve decided to “Get Off the Fence” and buy your new home. You’ve also done the smart thing and got Pre-Approval for a mortgage. Now you can shop for that home confident in knowing how much of a mortgage you can afford and how big a house you can buy.
Now the “Fun” begins! It will be an anxious time deciding on the right house. But don’t forget, the mortgage application process is not over. Just because you have Pre-Approval, doesn’t mean you can sit back, wait for the appraisal, and expect the transaction to close easily. You still have to take action!
Here’s a list of What To Do and What Not To Do After Pre-Approval to be concerned about as you move through the next stages of your mortgage process:
Don’t Apply for New Credit. Don’t Make any Major Purchases
Lenders are required to pull a new credit report just before final approval of the loan. Don’t be tempted to take advantage of the great sale for furniture or lawn mowers you’ll need in the new house. Any new credit inquiry will have to be examined; any new debt could affect your debt: income ratio (DTI); and worse, adversely change your credit score that could affect the final rate and terms of your loan.
Even if you pay cash, you may have less money for the down payment and closing costs and/or less money cash reserves (monies left over in your bank accounts to cover future ability to make future mortgage payments)
Don’t Change Jobs. Tell Your Loan Officer About Any Pending Change in Employment Status.
If a great opportunity comes along for career advancement after you’ve been Pre-approved, try to postpone the first day on the job until after your mortgage closes. Lenders are concerned about job stability and are well aware that most new jobs have a 30-90 day probationary period. Lenders might require you to provide a month’s worth of pay stubs to prove your new salary. They also might be concerned if the new job is not in the same line of work..
Conversely, you might be notified of a pending lay-off or worse. Even though you have provided the lender with current pay stubs, lenders will call your employer to verify current employment and the prospect of continued employment.
Be sure to discuss these situations with your loan officer as either one will require more paperwork and could delay your closing.
Do Not Pay-Off All Your Debt. Do Not Pay-Off Old Collection Accounts.
Consult with your loan officer before you do anything that will impact your credit score. Paying off credit card debt will reduce your cash reserves and could hurt you if the account is closed.
Paying off old collection debt will often signal to the credit reporting agencies that there is new activity on an a bad account and could actually lower your credit score.
Do Not Co-Sign for Any Loans
After 40 years of lending experience; I know that borrowers assume co-signing for your child’s car loan won’t affect their credit. “It’s not my loan, my kid pays for it.” The loan is considered a debt for both signers and will show up on the mortgage applicant’s credit report and will be included in their DTI. If the child has been late on any payments, the delinquent history will negatively impact the applicant’s credit score.
Do Not Ignore the Lender’s Request for Additional Information.
If your lender needs further clarification of the statements you made in your application, follow directions and do it ASAP! You must be prepared to provide all documents as soon as they are requested, because any delay on your part could delay closing and cost you money.
Do Not Move Any Money Around. Keep a Paper Trail of All Deposits.
To eliminate potential fraud, most loans require a thorough paper trail to document the source of all funds. It is okay to start packing up the dishes, but not your bank records.
Do Not start consolidating your bank accounts, do not make any large deposits to your accounts; Do Not make any large withdrawals either. If you do, document everything!. Keep copies of the check, the deposit ticket and the bank statements that were involved in the transaction.
Most important, Do Not Accept Any Gift Funds until your loan officer tells you how. There are very specific rules and paperwork that must be followed to document the use of gift funds for your down payment and closing costs
Do Not Continue Shopping For a Better Deal With Other Lenders.
This is not meant to be self-serving. Do your shopping for mortgage programs, rates, payments and closing costs first. Once you decide on a mortgage professional you trust, stick with them (unless you become completely dissatisfied with their service for some reason).
This is very important because all credit pulls when shopping for a mortgage will not hurt your credit as long as they are done within a 14 day period. If you continue to allow other mortgage companies to look at your credit and/or apply with other companies this can negatively affect your credit scores. I recall several situations where borrowers continued to shop for a better deal and it hurt their credit enough to disqualify them for the program they were Pre-Approved for, forced them to accept a higher interest rate and scramble to find additional monies for closing costs.
Do Stay Current on All Existing Accounts
Make sure you pay all your current obligations and you don’t have any overdrafts on any account. Overdrafts are a sign of “fiscal irresponsibility” and can kill an application quicker than many other factors.
Do Not stop paying your current mortgage, Do Not allow any utility or telephone bill to become collection accounts.
Remember, a Pre-approval is just a snapshot in time. Finding a new home may take awhile. So as time goes by, the lender will require more recent bank statements; and they will pull a new credit report just prior to closing. You want to stay as close to the original snapshot as possible.
Do Line Up an Attorney, and Insurance Agent and a Home Inspector
These professionals play an important role in your home buying experience. The attorney to review your Purchase Contract, defend your interests in the buying process, and represent your at the closing. You’ll need an insurance agent to provide you with home owners insurance; and a home inspector to make sure the property is in good physical shape.
Do Tell your Mortgage Broker and Your Attorney About Any Changes in the Purchase Contract and/or Statements Made in The Application
Situations may arise where the buyer and seller change the terms and conditions of the original agreement. Seller concessions, higher/lower sales price, closing date are some that come to mind. Any change to the LTV or the DTI will require re-submission of the loan documents and could delay the closing at additional expense.Similarly, let your loan officer and attorney know about any change in marital status or name change. This will help you avoid problems with the final closing documents and/or title problems.
Do Understand That Mortgage Pre-Approval is Not a Commitment to Lend.
A Mortgage Pre-Approval Letter can only be issued by an underwriter. The credit report that was pulled and all the documents you supplied form the basis of the snapshot of your financial situation at one moment in the process. It is typically issued with the caveat that it is subject to “receipt of a satisfactory appraisal of the property” and “final review of the complete application file” by the underwriter.
As the mortgage process evolves, borrowers are encouraged to stay as close to the original snapshot as possible.
You chose your mortgage professional because you trust him. If you have questions about what to do or not to do throughout the mortgage process, do not hesitate to give him a call. Be honest and upfront with your concerns; ask questions if you don’t understand something; and keep in touch after application all the way through closing to guarantee a smooth hassle free transaction.